Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts

Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [1]

Thank you, everyone. Thank you for your Good day management, investors and all participant online. I would like to welcome you all to Thai Union Group First Quarter Year 2020 Results Announcement Live Conference Call.

Today’s executives who are joining us are Mr. Joerg Ayrle, Thai Union Group CFO; Mr. Ludovic Garnier; Head of Accounting and Controlling.

Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [2]

Hello. Good evening, everyone.

Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [3]

And myself, Best, Investor Relations. The event will comprise approximately 40 minutes of presentation session. And toward the end of the presentation, we’ll provide a Q&A session approximately 20 minutes. Please do note that this conference session will be conducted in English. For the participant who has any inquiry for our management, please either type in the question chat lot or — a quick send or you can raise it personally towards the end of the presentation session.

Before I start — before I let the stage back to [open up], all those who do not speak, please mute your microphone to prevent any echo and make this session desirable. So thank you very much.

And on that note, I would like to invite Mr. Joerg Ayrle, the Group Thai Union CFO, to start the briefing. Thank you very much.

Yes. Thanks, Best. Thanks, everybody, for joining. I mean, those of you who have joined this webcast before know how it works, this time, it’s probably a bit different because we are in a COVID lockdown, everyone is from his home. But I hope the technology and everything works well.

And just to get started, everyone who is not speaking, just put your speaker on mute. Otherwise, there’s a lot of background noise.

So — look, and before I get started, I hope, of course, everyone is safe and your families are safe. And you have all the precautions to manage your business and manage to work from home or from a safe environment.

So let’s get started. Maybe we move directly to Page #5. Let’s go right into the numbers. We are finishing Q1 on a very strong note, strong operating performance, amid COVID-19, a pandemic. And — but it’s offset with some weak nonoperating items, I’ll come to that in a minute. So if we just look at the top line, THB 31 billion, 5.9% growth year-over-year. And if you would exclude FX effects, it would be a 7.6% growth. That’s like, wow, in many, many years, we’ve not seen this, so great improvement. If you look into the structure of this, it really is driven by a very strong March, a good February. So we have a really solid, very strong quarter, Ambient volume sales up by 25% year-over-year.

Frozen is a bit decline, primarily from the close-down and lockdown of the F&B industry, I mean, basically, every restaurant chain had to close the business in Thailand, in Europe, in the U.S., in Asia, anywhere. So hospitality revenue is down, but still the Frozen business has managed to basically stay more or less flat, but the Ambient business has more than overcompensated for that. So 5.9%, 6% growth year-over-year is great.

And we end up with a 16.2% gross profit margin, a very strong in all segments, increased in Ambient business, of course, from the sales. Improved efficiency from low fish price inventories that we had in a situation where fish prices started to increase again. Even the Frozen business was stronger than a year ago with strong feed business, strong feed business, [same] feed mill, if you recall, but also with other activities where we really focus more on higher-margin activities during this crisis.

Pet food, very stable growth contributor and profit, very, very strong, and you will see this in our other results later, other — our other segment later. Very strong margin in pet care, of course, benefited by the low fish prices that we had in Q4 last year.

Operating profit, plus 50% year-over-year compared to Q1 2019. Our SG&A expenses are still above 11%. We don’t like that. But well, look at this moment. I think with a strong 5% operating profit on revenue that’s also it.

Net income THB 1 billion. We did see negative developments in our investments, strategic investments in Avanti in India, but also in Red Lobster, we’ll come to that a bit later. And the sharp Baht depreciation, same like — when the dollar was weak, suddenly, the Baht moves back a little bit. We, of course, have some FX losses to record, primarily on our hedges that we have on intercompany financing. We have paid higher income taxes, mainly in Europe from a very strong profitability, 3.3% of sales.

For the next page. And this is then basically the same picture. Q1 is basically the same as the picture before. Net profit, THB 1 billion. Our share price is more or less flat to beginning of the year. We have still — it seems Red Lobster overhang. I don’t know what people are hearing. I always encourage people to listen what the company says and not with newspapers. In March, I guess, we had a very strong share price development. That was good, but there was a little bit of an overhang that in April. So we are more or less flat from the year beginning.

We are on a net debt-to-equity of 1.05. So amidst this crisis, we are actually quite strong in returning cash to the company. It will come a little bit later. We’ve earned more than EUR 1 billion in cash flow. You’ll see that in our net debt bridge.

Next. Our long-term tracking looks comfortingly stable and it is stable. I think since several quarters, we’re now in a range between 15% and 16% gross margin. That’s good. We would, of course, have liked to grow a bit stronger, but Q1 is a breakthrough. So we make a real step forward on this. Strong gross profit growth in Thai Baht also 15% up, revenue 6% up, and the discussion on net profit, we’ve addressed those primarily from below OP items.

Next page. Yes. Let’s go direct COVID impacts. But there’s a mixed impact on our business. And for those of you who joined us on Thiraphong’s and mine COVID briefing a couple of weeks ago from our kitchen on the 35th floor will notice we have a very strong impact on our Ambient business, a very strong positive impact on our Ambient business. The Ambient business alone in March grew 50%. That’s an enormous uplift, of course. And look, people are asking, is this pantry-loading? Is this consumption? I would say, every pantry-loading leads to higher consumption. People are not just leaving that in their pantry. They are consuming it. And we are helping a lot through recipes, through communication to consumers to increase consumption.

So a large part of this, in our belief is actually consumption growth, consumption-driven demand. And during this quarantine situation, people maybe eat maybe be healthy. So they turn to tuna, to Ambient seafood, something that is healthy, gives the Omega 3 and is easy for people to use and to prepare. You should check out — you should actually check out some of our recipe videos that we’ve launched a couple of weeks ago. Some really great fish cakes, tuna fish cakes and tuna pancakes. Very, very nice recipes that we have.

On the flip side, we have the Frozen business, Frozen chilled seafood, and — especially in the U.S. and also in the domestic market, we see contraction, primarily from food and beverage, basically in the U.S. The whole F&B industry is closed. Nobody is buying product. So that did see some contraction in Thailand. It’s not so different. We have a lot of less tourists. All hotels are closed in Thailand. All restaurants are closed in Thailand. So consumption is, of course, not there.

Some increase in Japan, some of the Asian markets actually did quite well. But these are the 2 coins, 2 sides of the coin.

Now I do not know if I am frozen or not.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [5]

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No, we can see you, Joerg. It’s fine.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [6]

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Okay. I’ve frozen on my own picture somehow or other. But one thing I want to add here at this stage we, of course, are completely focused on safety of our workers, safety of our workforce, safety of our production facilities. We have very strong crisis response. We have a daily crisis response call. We have a lot of focus on safeguarding consumers, safeguarding our customers but also safeguarding our employees. In Europe, we’ve been working from home for many weeks now, in the U.S., the same and also here in Thailand, people have a choice to stay home and be safe or come back to the office, for those who feel this is convenient for them.

Next page. So what we’ve done is, we’ve implemented a very rigorous cash preservation program. And I’m sure those of you who read Bain Consulting or McKinsey or BCG or other consulting firms’ advice and even the SET has organized panel talks and panel discussions, they will notice very well.

Cash preservation is the absolute #1 priority during this period. We have regular reviews. We have weekly cash preservation team calls. The CEO is there. I’m there. We have a group of key executives that review this on a weekly basis. We’ve decided to reduce 25% of our CapEx across all business units globally. We are reviewing — I am reviewing on a daily basis purchases and procurement and payments that we do. We are reviewing weekly procurement plans above $1 million. We’re reducing and flexing SG&A expenses and overhead costs to minimize discretionary spending. And we have an absolute focus on overdue accounts receivable.

We go through with our teams through a list of customers who want to delay payment terms. We are helpful where we can be helpful. We work with banks to do factoring. We work with EXIM Bank here in Thailand to see what is their risk appetite. And I have to say, knock on wood, we have not had any material delinquency. Whereas some delays that we see, they’re all at a very minor range. They are mostly in the U.S. in the American Food and Beverage industry. So really, really great work to the team to manage share overdue and control overdue account receivable.

We have stringent inventory control in our supply chain in areas where we don’t have sell off. We’re not buying from suppliers. So also there, a very strong cash focus. And we’ve not put it here on a page. But for those of you, I mean, of course, we have cash reserves on our bank accounts, idle cash reserves of 2 to 2.5 months of operating expenses. So we’re in a very, very healthy, very strong position. We have fortified ourselves against any shocks. And I have to say, for the last 6 weeks, 8 weeks, 6 weeks have shown a level of collaboration in the company that I have to say, I’m amazed how people are motivated, transparent, work on topics together and have only one objective in mind: fortify the company, help us get through this crisis, maximize opportunities on the customer front and help those customers that are important to us with payments that they have helped. Those suppliers that we have that we still need in the future to manage their cash flow issues. And with our own cash conversion rate of above 1, we — this has paid off very, very well.

Next page. We’re also supporting local communities and those that are effective of COVID, of course, in China, we’ve given 52,000 cans of King Oscar Tuna, the 16 hospitals in Wuhan. We’ve done [4] programs in Thailand with Sati Foundation, the Red Cross, the Ministry of Public Health, the Ministry of Social Development and Human Security with — basically with product offerings.

In the U.S., Chicken of the Sea has given 500,000 servings of canned tuna, salmon and other products to a hunger relief organization. (foreign language) in France has donated products. The [team at Via] Has donated masks to hospitals and John West has donated salmon to [Elton]

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Of course, behind with all the COVID activities, let’s not to get one of the pillars that we’ve built up over the last couple of years. And that is our sustainability program SeaChange. And we’ve expanded this to include and add climate change

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [7]

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Hello. I think I can hear you now. Just one — voice is, the sound is gone?

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [8]

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Yes. Okay. I think we lost you, Joerg.

And would you just give him 1 minute and then otherwise we’ll continue. Okay.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [9]

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Yes, absolutely. I think the connection from…

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [10]

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Okay. Maybe I’ll just continue. And he will reconnect again.

[Lina], can we jump to Slide #16, please? Okay. So we just wanted to go through with you on the Q1 2020 key takeaways. And as we said, first of all, we are really happy with the top line development. I think this is the best Q1 sales performance since 2017, in absolute amount, okay. Exceeding THB 31 billion sales for Q1 for us is a pretty good performance, and we are growing by 5.9% compared to last year. And as Joerg mentioned, of course, a very strong impact coming from the Ambient business. It’s very difficult for us to say how much of this is really coming from the lockdown, the social distancing and the home cooking. We can say that we had a very — an excellent month of March, especially in Europe, in the U.S. and also in Thailand. It’s very difficult to say how much of this is really coming from the lockdown. Excluding the FX, the sales would have grown by 7.6%. So if you look at over the last 3 years, this is the best performance.

The volume performance is also very strong. We have an increased by almost 7%. And again, mostly coming from the Ambient volumes, you can see here, the Ambient volumes are growing by almost 25%. However, we have a smaller impact coming from the fish price of broad net sales in the Ambient — growing a bit slower compared to this amount.

Frozen and Chilled Seafood, as we mentioned before, we have some challenges here, no surprise. This is the most exposed to the COVID situation, especially because we have a lot of sales to the full-service channel and also to the restaurant channels, so here no surprise. We are facing with the volume decline by 1%.

Gross profit, I think we are very, very good over the last few quarters. We are [above] 16.2% compared to 14.9% achieved in Q1 ’19. We are overall growing everywhere, and we are very happy with this one. In terms of absolute amount, we are improving by 15% year-on-year. So we are very happy with this one.

SG&A overall are on track. Of course, we always want to be a bit better. But at 11.3%, we are really comparable compared to the 11.4% we achieved last year.

OP delivered THB 1.5 billion, THB 1.5 billion, growing by 50%. And I think this is really the key takeaway for me for this quarter. Very strong top line and very strong OP also, THB 1.5 billion for us for Q1 is quite pretty unusual for us, and we are really, really happy about this development. However, you can see here the last box. You don’t find this upside, this uplift in the bottom line because we are facing with some headwinds, especially in the share of profits.

Red Lobster and Avanti, Joerg already mentioned this one, are declining versus this one. So total is THB 360 million, almost THB 250 million coming from the Red Lobster decline.

We have also some lower FX gain. We have also some higher income tax by 1 — something like THB 100 million, mostly coming from the improved operating performance.

Below the OP, we also have some good news. The finance costs are declining by almost THB 100 million, mostly coming from the implementation of the payer bonds that we did in Q4 2019.

Next, please, Lina . Joerg, I think, you are back, if you want to add anything, please do not hesitate.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [11]

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Sorry I fell out of it. It seems your pace is quicker than mine.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [12]

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Okay. So here, just a usual chart on the fish price. And as we say, for us, a normal range for the fish price is between THB 1,300 to THB 1,700. Now in Q1 ’20, we are back to a normal range. We are at 1,442, slightly declining versus Q1 ’19, but really increased compared to Q4 ’19. As we said during Q4 ’19’s webcast, this was not a normative and a sustainable one for us. So here, it’s quite a big increase compared to Q4, but we are back in a normal range. So we are okay with this one, and we can manage with this kind of range.

Next, [Lina], please. So here, a quick focus on the sales. We mentioned this one here, you can see the development over the last 5 quarters. So here, what you need to keep in mind is the growth by 5.9%, excluding the FX, it has been quite a while, 3 years that we did not achieve such a good performance. And here, you can see here the key highlights. And as we said, we have very mixed impact coming from the COVID situation.

We have a strong push in the Ambient sales, and I will get back to this after. The Frozen business is facing some challenges, plus we still have in over this quarter, some negative impact coming from the FX. It’s improving. I think in Q2, maybe we will see some changes coming from this one. Because the USD and URE (sic) [EUR] recovering versus the Thai Baht. But overall, on average of Q1 for the time being, where the Thai Baht is still improving compared to last year. However, the March and April developments are really changing. And I think the situation will turn around in April and Q2.

Next, please. And here, you have a view — our usual view by segment. And this, you have a very clear picture, okay? In green, you have all the Ambient business. Very strong push coming from the tuna, very strong push also from the saline macro, salmon Ambient also and the other seafood. So all of these really green. And if you look at the percentage of growth, it’s really impressive. And then just after, you can see that all the challenges we are facing in the Frozen business. In the shrimp and also in the lobster and the salmon, we have one exception, which is in the upper seafood, which is very specific due to the U.S. situation.

The pet care is doing well. We are growing by 3%, and the value-added other in growing by 5%. So here, very clearly, you can see the different drivers in our business. You can see also the negative impact coming from the FX. USD is quite small, 100. It’s okay compared to what we had last year. It’s not a big deal for us. Euro is still a challenge, declining by 4%, so it cost us THB 400 million in terms of top line. But here, 31.1, we are very happy with this one. As Joerg mentioned, right now, it’s too early for us to say how this will cause some pantry loading? How much of this is coming from the re-consumptions? So we have different scenarios. We are working on this. But right now, we are happy also with our development in April.

Next, Lina , please. So here, our usual breakdown by geographic. There is no significant change over this quarter. You can see we have some push from Europe and also from the U.S. and we have a small decline coming from Japan. But overall, it doesn’t change the whole picture. The breakdown between brand and between private label, we have a push also from the branded business compared to the private label business. We need to see if it is confirmed in — over the next quarters.

Next slide, please. So here, this is a focus on gross profit, okay? And we are very happy with this. You can see growth in absolute amount by 15%. And in terms of gross profit margin, we are at 16.2% versus 14.9%. So the key drivers on this one, of course, the fact that the Ambient business is really growing, is really good for us because in terms of profitability, this is usually a more profitable business than the other categories. And the fact the Frozen business is also declining, is also good for us in terms of mix segments. Because overall, we have a strong push coming from the volumes and also favorable mix segments on these ones. So these are the key 2 factors explaining the gross profit development. Pet care also, you know this is one of the key contributors for us, and it’s also performing well in Q1 2020.

Next one, and I think this is really the key takeaway I want you to keep it in mind, which is really the OP uplift by 50%. I think it’s quite rare for us to show, to disclose such a performance, so we are very happy. On this one, of course, gross profit increase is one of the good news. The SG&A are under control. So mechanically, here, you have an increase by 1.5%. And in fact, I was a bit surprised over the last 4 quarters to see, we are very consistent in our OP development. I think this is one of the first times since I’ve been within Thai Union that I could see such a situation. Really, that is pretty unusual for us on this one.

Next slide, please, Lina . So despite the OpEx growth, here, you can see we have an EBITDA drop. Why? Because in between the OP and the EBIT, we are facing some decline coming from the share of profit, which is a share of loss for us in Q1 2020, a very unusual situation for us. Usually, we always have some positive share of loss. But here, we have Red Lobster and Avanti which are declining compared to last year. And we have also a situation of FX loss over the quarter compared to a small FX gain by THB 80 million last year. So that’s why overall, our EBITDA is dropping by 6.6%, mostly coming from nonoperating items on this one.

Next, Lina , please. So net profit. Joerg mentioned this finally, we are just above THB 1 billion. So we are declining by 20% compared to last year, where we achieved THB 1,273 million. The key drivers, so we mentioned already the share profit, the FX gain and loss. And the other significant impact is the tax. We are really increasing in terms of tax expense. This is normal because our OP is really improving. So we have — and then we have also some positive one-off in the tax, I will get back to this just after.

We have some good news again on the finance costs, on the discontinued operation expenses. However, this is not sufficient to offset the decline coming from the other one.

Next slide. So Slide 25, we just present our adjusted net profit. And in Q1 2020, we don’t have anything significant to report. Just to remember, in Q1 ’19, last year, we had 2 positive one-off, which was a positive gain from sale of asset for THB 100 million, and we have a positive also tax rate for THB 62 million. So if you exclude these 2 items, then last year, we were at THB 1.1 billion, and now we’re at THB 1,016 million. So we are still declining. However, the decline is a bit less compared to what it was on the reporting numbers.

Next slide, please. So next one is EPS. So EPS is down by 26%, of course, just coming from explained by the net income decline compared to Q1 ’19, plus we have also some impact coming from the perpetual bond interest, dividends that we paid over Q1 for something like THB 70 million. So that’s why overall, the EPS is dropping by 26%.

Next one, Lina , please. So here, this is the Red Lobster usual. And here, you can see — you can focus on the share of profit, which is a share for us for Q1 2020. Historically…

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [13]

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Yes. Maybe I can jump in here. And look, I think, there’s a lot of — there are a lot of comments and this Intrafish article, of course, raised a lot of unnecessary noise from things that I do not know how things are sometimes written. If you look at the financial performance of Red Lobster and how it contributes to our business. These are the 4, 5 key elements: Share of profit, the other income, the income is basically the preferred dividend yield and other payments to receive. The finance cost as a negative, of course. The income tax effect, then you have a net income effect. Now typically, Q1 is a great quarter for Red Lobster’s performance and Red Lobster after correcting some of the 30-second, 15-second TV spot mistakes that were made at the end of last year, saw a real good ramp-up of the business in January and the first week of February, end of February and then came COVID. And COVID within a very, very short period of time led to massive reactions by the American government. They did what a lot of people did, a lot of companies did. They closed all the dining halls and basically went into lockdown. Now for Red Lobster, it meant that 60% of restaurants still remained open are for takeaway and delivery. And while, of course, you can’t completely offset here your revenue when you just go on off-premise, our off-premise business still grew more than 3x from where we were a year ago with a very strong weekly growth trend.

And since the lockdown, we’ve opened more and more restaurants for off-premise business because it became clear very quickly that people still want to dine with Red Lobster. People still want to have good food served to them, and they took opportunity to either pick up or have meals delivered to their house. So we have a great program on off-premise. We have, at the same time, massive cost saving plans that have been executed from rent curtailing, G&A expense cutting in the headquarter, marketing expense reductions, of course, sending people on furlough as everybody does, but many others have actually laid off people. We’ve not laid off any person. We’ve sent them on furlough because we are committed — Red Lobster is committed to the employees, especially during this crisis.

They’ve implemented cost savings of more than $8 million in weekly cost. So more than $8 million of weekly cost reductions, and that’s not cost of goods sold, right, that’s really overhead cost, has been implemented. And to be quite frank, we, of course, believe that some of these savings, we will be able to serve as safeguard and rescue also the period after COVID.

The team has been able to launch a very attractive 1-page menu and implemented an everyday reason to visit or to dine with us with 8 million registered users of the My Red Lobster Rewards digital platform. And there’s a lot of great marketing going out that is low-cost marketing, but very targeted to people who we know like Red Lobster and want to dine with us.

And the team, honestly, since in 3 years, I have not seen the leadership team as energized and engaged in this transformation agenda. They really see this, of course, as a major risk, but maybe even equally so as an opportunity to implement some changes that they never were able to implement in the past. So there’s a lot of really positive energy coming out there. The teams are preparing for a very slow and very measured reopening of restaurants where the state legislation allows this. And look, with the $200 million in available free cash on the balance sheet, this business is in a very good position to come out at the positive end.

There’s more work required. This is not like it’s a slam dunk. There’s a lot of work for you to make this happen. But the level of energy that we see is released and put to action in the team here is enormous and amazing. And I can only put my thanks out to Kim and Bill and Horace and Tom to really turn this around and have initiated the right actions.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [14]

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Okay. Next slide, Lina, please. And I think this is also one point we want to focus on. I’m not sure that you will see a lot of businesses generating some positive cash in Q1 2020. So here, we achieved in Q1 2020 THB 1.1 billion, slightly declining versus last year. However, we have a higher cash commission rates. We are very happy with this development, especially considering the specific situation of this quarter.

Just for you to keep in mind for us, it’s a lot of effort. It’s not that easy. It’s a very strong focus on the AR. Very, very good follow-up also on the level of inventories and also the AP management, okay? So a lot of actions behind, and we are very happy because over the last quarters, the performance in terms of cash generation was positive and is going in the right direction.

Next one, Lina, please. So the next one is our net debt development. So here, we have a small decline in terms of absolute amount. We have a reduction by THB [200] million. We have EBITDA by THB 2.6 billion, which is one of the key driver. The CapEx is 1.2. We cannot really see yet the decrease by 25%. This would be more effective on the next quarters because it was decided during the first quarter, so we cannot really see the impact. So the 2 key drivers really are the EBITDA. We have a small negative impact also coming from the change in net working capital, but nothing significant at this stage. And then the CapEx, we still want and continue to invest massively. However, we will pay a lot of attention to this indicator over the next quarters because we really want to put a lot of focus positive cash preservation. But here, overall, you can see we achieved a decrease of our net debt-to-equity ratio. We were at 1.07 at the end of ’19 and now at the end of 2020, we’re at 1.05, and we are very happy with this one.

Next, Lina, please. And here, you will see our usual breakdown by currency and by maturity. We don’t have significant change by currency. You can see by majority, we have a bit more short-term loan, but nothing really significant at this stage. I think for us, it’s just normal business.

Next one is just a quick focus on our user ratio. And maybe I would like to insist on 2 things. The first one is net debt-to-EBITDA. You can see now we’re at 4.64. So we are almost in the target range. We always communicate on the — that we want to be between 4.0 to 4.5. We are just slightly above, but we have (inaudible) and good hope that all along the year, we get back exactly in this (inaudible). So we are happy with this one. And net debt-to-equity, as I mentioned, 1.05. I think the development, you can see this one are really positive over the last quarters. Of course, just for you to remember, in Q4 ’19, we implemented the perpetual bonds for THB 6 billion and it really help. However, even if you exclude this one, the development are quite good all along the past quarters.

And Joerg, anything to add on this?

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [15]

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No. I think what we should look here on this page is really the very strong net working capital management. We’ve had very, very choppy quarters in the past, and I think there’s a lot of great discipline that came into the business. Inventory days are now at 122 days. Net working capital days are very stable around 110. And look, we always complain about high inventories, right? And if you look at the opportunities that we were able to capture in March and in April because we did have these inventories on our books and in our warehouses. There are also opportunities to be had from, and I think we’re quite happy with that.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [16]

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Thanks, Joerg. Best, please. Your turn.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [17]

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Right. Now we are moving on to the section financial. Before we go in, I would like to go through briefly on the operating factor. We have seen during the first quarter, tuna price has been increasing pretty significantly from arguably a very low level. Fourth quarter was [a bit] too low. And if anything, the current tuna price of about USD 1,400 per ton was actually in the range of which we have already been discussing that the normal tuna price should be at around the range of $1,300 to $1,700. So at this current level, we are very confident that we can operate business on a normal basis.

And then the shrimp price and salmon price are relatively — the shrimp prices are relatively stable, both year-on-year and Q-on-Q. Although we have seen that the salmon price has been spiking up a little bit in the first quarter and has been coming down during the month of April already.

Okay. Next slide, on currency. This one is actually more — of more focus from most of you who’ve been following Thai Union. U.S. dollars has been — Thai Baht has been depreciating against most key currency to — especially toward the end of the first quarter. However, I mean, if you look on a full quarter basis, on year-on-year perspective, we are continuing to see Thai Baht appreciated marginally against U.S. dollars and more significantly, against euro and GBP. But nonetheless, I mean, we still managed to deliver a solid sales growth of 5.9%. And as Ludo has been mentioned earlier, excluding these FX impact, our revenue growth will be at about 7.6% compared to the last year.

Okay, on the next slide, we will go through the section on Ambient Seafood. On Ambient Seafood, I mean, we have reported a sales growth of 16%. This is mainly driven by the quantity sales that we have been growing the volume sales by almost 25% compared to the same period last year. Obviously, these are due to the fact that people are — practice social distancing and more home cooking. So as a result, we have seen a very strong first quarter. And on this, the branded business are the key growth contributor between the two, while both are growing. I mean, branded business are growing at 20% compared to the same period last year, and private label are also growing at 11%. At any rate, both of those growth are very remarkable and has been clearly driven by the current situation. And gross profit has been up by both the sales growth and the marginal gross profit and margin improvement as well.

On Frozen business. Next, please, Lina. On Frozen business, we have seen slightly opposite picture. We have seen quantity sales. We have seen the food service business around the world has been affected, and as a result, our food service sales has been dropping. But nonetheless, I mean, the impact of the restaurant shutdown come a bit later in the quarter. So we will continue [around] for the entire month of March. But anyway, due to that, we have maintained that our quantity sales, the volume sales been declined by only 1% and sales by 5%. These are arguably partly due to the decline in the average selling price as well.

And on the gross profit margin, we still managed to deliver a small improvement of — on the gross profit margin due to the change in mix towards more of the high value product.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [18]

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Let me quickly jump in here, Best. I mean, one of the questions was, do you have any inventory risks? Do you have any inventory write-downs? This is the moment where it’s probably the best to comment on. We have, of course, in our U.S. business, especially some lobster and some crab inventories. And look, such a crisis it’s not very conducive to selling a lot of lobster and crab. So lobster and crab prices have eroded quite massively, and we took a $5 million — approximately $5 million reserve on those inventories. And those — this is one of the key drivers behind this drop from 11% to 6%. So we did take precautions on this. We believe this should have alleviated problems that we have in our inventory now. Do we know how this ends? Of course, we don’t. But I think there is some hope that things are not as bad as they could be. We think would be a few million dollars provided here. We’re actually quite…

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [19]

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Thank you for being so up front about this and jumping in. I will move on to the next picture.

I mean, that — clearly, I mean most of you here, a lot of you have been calling me — has asked and been asking about this very question, and I think you heard it from the horse’s mouth.

On the Pet Care and value-added and others, we have seen the business continue to be reported stable growth. Revenue of this segment is growing at 3%, and the quantity sales have been dropped slightly by 7%. But overall, the margin has continued to improve from 22% last year to 25%. And this is partly due to the raw material price that we have in the recent quarter and partly due to the mix effect of the product that we sell.

And now outside of the segment, we are going through the geographic sales. We will just dive into the U.S. market. All right. Okay? On the U.S. market, we continue to see a strong growth in Ambient Seafood, partly offset, obviously, by the Frozen business everywhere around the world like what Ludo has been — and Joerg has been mentioning, the Ambient Seafood has been growing very well. U.S. Ambient business. Our Chicken of the Sea has been delivering at 29% growth year-on-year. So that is considered very strong. But on the flip side, we have seen the food service being affected, and our U.S. Frozen business are seeing a decline by about 3% to 4% in terms of sales compared to the previous year. And obviously, Red Lobster was effected from the shutdown. But that’s — still, I mean, on all our big picture, our sales are [fully] delivered a solid growth of 8% in the U.S.

On the European market, this is where we — our exports are predominantly Ambient product. Our sales been growing by 15% compared to the same period last year and 18% compared — on quarter-on-quarter basis. So these are mainly driven by all the Ambient Seafood product, whether John West, Petit Navire, Mareblu. We have seen King Oscar and Rugen Fisch. All of these brands are delivering a very solid growth and come in with the branded business that are innately given our higher-margin and as a result — resulted in significant margin enhancement to the overall performance and operation.

On Thailand, now we’re back into the home country after seeing a strong growth over the last 2 years. We have seen quite the slowdown in the first quarter of this year, mostly because of the low — both the lower (inaudible) and the close-down of restaurant. I mean, a lot of business in Thailand are related to the food service. But nonetheless, we like to — we are still happy to say that our SEALECT and Qfresh, our online Frozen business continued to see a strong sales growth during the first quarter of year 2020.

For the rest of the market, there was quite a mix that — why we see in Japan growing very strong at 19%. We’re seeing some decline in China and the Middle East. Clearly, I mean, those 2 countries are one of the first and has been very heavily affected by COVID-19. So that, we have seen slightly weaker sales there. But on the other hand, Japan has been a key push, has been offset some of the decline.

In terms of the segment profitability, I would not mention more. I mean, we have recorded very good sales of THB 31 billion, with margin of 16.2%. We are recording gross profit here of over THB 5 billion, and that is 15% higher compared to the same quarter in the year 2019.

And on that, I would like to pass the stage back to Joerg. I mean, just to discuss what should we be expecting or seeing over the coming quarters? Thank you.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [20]

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Look, we thought about this. And I think the fairest response to all of you is, our focus is on cash preservation, opportunity capturing, managing our day-to-day operations and looking at the safety of our people. At this stage, we do not have sufficient information to give you a new outlook, to give you a new forecast. There’s so many moving pieces. And a lot of your questions are directed exactly towards that. Of course, I would like to have more clarity. But I hope to gain your support in deferring that discussion on a clearer view on the outlook a little bit later in the year, maybe in Q2. And we have a clearer picture, I can give you some directional messages. But at this stage, we just don’t feel we have enough credibility to give you specific numbers as to a financial outlook.

So look, we’re dealing with the situation. I think we’ve come around with a fairly strong one. We’re capturing every dollar opportunity that we have. We’re managing the Red Lobster situation with a lot of positive news despite, of course, the overall situation being difficult. But look, we also don’t have a crystal ball.

We’ve received up front a couple of questions and answers. I think I’ve answered the question on inventory write-downs. We’ve done a little bit on lobster and crab inventory. So that’s what we’ve done.

And let me go into some of the questions here on the Skype chat.

Have all restaurants reopened?

Look, the government in the United States, the same as the government in Thailand, has restricted opening of dining halls, and that’s, of course, true also for Red Lobster. Some states have allowed a moderate opening of dining halls, and we have started to do some of this in a very careful and safety-focused manner, and we will open restaurants as and when we are allowed by state and federal legislation in the United States.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [2]

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Maybe Joerg, do you want me to take the next one?

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [3]

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Yes, please.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [4]

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We have one question, which is on how to reconcile the Q1 ’19 P&L, especially below OP items with the reported numbers we had last year?

So the key driver here, I don’t know if you remember, in Q4 ’19, the key driver for this change is the classification of the Red Lobster interests. In Q1 ’19 the reporting numbers, it was recorded in the specific line: “interest income”. And in Q1 2020, now it’s recorded in a new line, which is called “gain and loss on financial instruments,” which is itself, including the line “other gain and loss”. You remember we discussed about this one in Q4 ’19, that was a request from our auditor, due to the implementation of IFRS 9 last year. They believe the classification of the Red Lobster interest — preferred interest should be in this line. So we just restated 2019 Q1 to make it comparable with Q1 2020. So it’s a very simple classification and the amount of the reclassification is THB 232 million from the line “interest income” to the line “other gain and loss.”

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [5]

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Quick answer on will strong Q1 Ambient Seafood sales continue in Q2?

All that we see up until now is that the strong revenue continues. We see in some markets in Europe, a little bit of a slowdown, but there is no trend change. So yes, we believe that the strong revenue will continue throughout Q2.

Look, a question on weekly cash burn rate of Red Lobster. We’re not free or at liberty to disclose any detailed financial numbers, especially not weekly cash burn rates. I think that’s not our practice. So — look, we earn money. We earn positive cash once the business is at approximately 40% to 50% of usual revenues. So once we had 40% to 50% of usual revenues, the business is cash positive. We’re a little bit away from that. But honestly, we’ve done a lot of positive things in cash curtailment — in spending curtailments in a cash preservation. We’re very happy with the progress that’s been made.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [6]

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I can take next one, Joerg. We have one question regarding the extra item of the adjustment in Q1 2020.

And here, please refer to the Slide 25. In Q1 2020, we don’t have any significant one-off. We had some discussion internally just to be very transparent on how do we consider the couple of millions of dollars that Joerg mentioned on the inventory accrual. But we decided [either] these transfers is just our [normal] business, unfortunately. So this one, we did not restate this one. So we don’t have any significant one-off to report in Q1 2020.

Just for you to remember, last year, the same period, first quarter, we had 2 specific one-off for THB 162 million. This is slide number 25 now. And it was THB 100 million from the capital gain on the sale of assets and also THB 62 million coming from the tax rate. But overall, what you need to remember, Q1 2020, we don’t have anything significantly to report on this.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [7]

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[Question] on supply chain disruption, Q1. There’s supply chain disruption by COVID. Look — of course, there are some slowdowns, some papers couldn’t — that were not available in physical — in a hard copy print-outs and then something gets stuck in a customs warehouse for a couple of days longer. So of course, you have some small such things. There has been nothing material. We’ve not seen any massive blockages and logistics or anything. Our factories are running and in some factories, of course, there are screenings, and then you have a couple days of production delays. I think that’s quite normal. But that’s more than overcompensated with our overall supply chain to be on absolute production limits here in Thailand. We are booked out and people work really over time to get this in. Yes, there are some smaller hiccups here and there. And look, people safety is the #1 priority, right? So if there is something suspected, we will investigate. We are not forcing people to work in small, confined spaces and it’s what we really know what’s happening. So overall, really no material impacts. If we look at the really very strong performing factories, especially here in Thailand.

One question, “I can see negative impact from Frozen business will be outweighed by good business in Q2?” Look, I don’t want to make any forward-looking statements. But I think in Q1, you’ve seen that there is a strong Ambient business. I think we need to assume that in Q2, there can be real negative effects, especially in the U.S. So I wouldn’t want to make a definitive statement. We feel good about the Ambient business. The Frozen business, especially in hospitality has challenges.

Now can I say, mathematically, that one is bigger than the other? I really want to see a couple of more weeks to feel certain.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [8]

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Just maybe Joerg to add on your comments. Just to remember, everyone, the situation is really, really, for us, unusual. Such a growth in the Ambient business for us is really good, but we’re [not use] that in such a decline also in the Frozen business is that you — so for us, it’s very difficult to predict. And I think you will have the same comment in almost all the businesses. I think overall, compared with some other businesses, we are quite lucky because we have some top line growth. We have some OP growth. We have some cash generation. However, I fully agree with you. It’s very difficult to predict and we want to remain very, very cautious on this one.

We have another question on the impact on the Thai Baht depreciation on our operations. And I think we have 2 aspects here. We have the first one, which is what you can see here in Q1. We have some FX losses coming from the Thai Baht depreciation because basically, we do some hedging all along the year, and we did some (inaudible) hedging at a less favorable rate than the spot rates. And this is why, the key reason, why do we have some FX losses in our Q1 numbers. So negative impact in the very short term.

Now in the long term, of course, we are mostly an export business. So when the local currency, the Thai Baht is weakening that it’s improving our competitiveness compared to our competitors. So we really believe that it will improve our operations. We said all along the year 2019 that the Thai Baht was so strong. So we are very happy to see such a development. Of course, we have some negative impact on the short term. But in the long term, we are quite happy with this development. Of course, we need to see what’s happening in Q2 and in Q3. We’re happy on the change that already happened in Q1 and in April.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [9]

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A question on Red Lobster restaurants. Look guys, in states where it is not allowed to open dining halls, we are not open. And it’s really not on me or us or even Red Lobster to know when state governments are opening the lockdown provisions. We really cannot make any comment on that. I just simply do not know. It’s like — I would ask you when other restaurants in Thailand opening freely and serve alcohol again. I wouldn’t know and nobody does.

So at this stage, we can only take it step by step. Very few states that have allowed dining halls to open again. In those states, we’ve opened a couple of restaurants. And if I say a couple of, it’s just a handful, maybe 2 handfuls. So not like massive, but this is a weekly progressing news. So maybe by next week, we have 30 restaurants open or 50 restaurants open. It’s really a question — situation where a situation we would not want to bring our employees at risk. We don’t want to bring guests at risk just we want — just because we want to have here some quick good news. And then suddenly, we have cases that we can’t handle. So I’m sorry, you’re asking your questions that are understandable, but the level of detail that (inaudible).

But kind of coming back to that — (inaudible) asked [Bishna] are we committed to the business? Of course, we’re committed to the business. In a crisis, you’re not walking off the bridge. In a crisis, you’re on the bridge. You’re on the side of management and you’re steering through this. So we have a very strong conviction that we want to turn around this business. There’s a lot of positive energy in it. We believe that Red Lobster has good plans to get through this, and we will be with them and help them to get through it and come out at the better end of it. And as long as this happens, we’re committed to the business until we hear more.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [10]

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We have another question regarding, do we expect some possibility for extra items in terms of inventory impairment in the Frozen segment? Again, we want to remain very conservative here. We told you that we already recorded some couples of millions of dollars of inventory accrued in Q1. The key exposure for us are really the Lobster business and also the Crab business. The development on the price on these raw materials was very unusual in Q1. And this is why we had to recall this one, depending, of course, on direction, there could be some further inventory impairment happening in Q2. But at this stage, we don’t have any clue on this one and we don’t have any visibility.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [11]

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And look, I do not see this to be really largely (inaudible) in the context of our financials.

Are there logistic issues at export? Actually not. We can export. We can deliver. We are able to deliver, so we have no material impacts on our logistic chain. What others do we have?

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [12]

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Yes, we have some question on the — do we observe any logistic issue on the exports? Right now, we don’t really see anything significant. Sometimes maybe the deliveries and the [others] can be a bit slower compared to usual. But at this stage, and again, we want to be to remain very conservative. There is nothing really significant on the Export business.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [13]

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There’s one question, the court case progress in the U.S.? I assume you mean the antitrust litigation. The American legal system has closed down, has shut down completely during this period. So there is simply no progress. Courts are closed. Negotiations are halted and stopped at this stage. So there simply is no progress. As you know, we have only 2 cases left to resolve. We feel good that we will resolve them on time and that we will stay within what we’ve approved for more on less.

Opportunities for M&As? I love that question. It’s a very, very good question. I think at the right time, this is something to consider. I think it may be a bit too early to think about that. But yes, this is something we absolutely should think about, but maybe a little bit later. Maybe once we understand that we are really through this crisis, and — but that’s the time when strong companies can pounce and excel. I will — a very, very good point. It’s not forgotten. And once we’re ready, we’ll look at this.

One question on long-term strategic plans. Look, I mean, this is not the forum to discuss long-term strategies and so on. I think — you see a couple of trends. I think there are a couple of trends that you can see. Online is a channel that has become very important in the grocery industry. And I think we need to sharpen our pencils around a suitable online strategy. Here in Thailand, we’ve had great success with Thammachart, Qfresh, very good businesses. We’ve pushed a lot of online activities in other [markets]…

(technical difficulty)

…(inaudible). Look, Red Lobster (inaudible) lots of things. There’s an online game, so — and the recovery there. So this is certainly one learning out of this.

I think the second learning is every one of us, I’m sure, has experienced good things during this crisis, working from home, traveling less, focusing more on relationships. And I’m personally a very strong believer that this crisis will lead people to rethink how they operate their businesses, how they are staffing their headquarters, how they are sizing their resources, how they’re traveling, and I think we will see a lot of opportunities coming from that in how we work and operate together.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [14]

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I think we have the last one, Joerg, on the crisis management for TU plants? Do you want to take this one?

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [15]

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Crisis management. A couple of weeks ago, we’ve established a crisis management team here at headquarter. (inaudible) is leading it under the co-chair. [Inez from] (inaudible) is project manager for it. So we have daily calls, daily reviews. And what we’ve done is we’ve implemented a very specific crisis response plan for each plant that starts from, “What do you do if there is a suspected case at your gate? What do you do if there is a suspected case inside the building or inside your premises? How do you identify coworkers that he was in touch — or he or she was in touch with.” And so on. There is a very detailed plan on what to do, how to cordon off small sections, clean them? How to identify workers and send them home and quarantine, right? We have factories that we’ve said, look, “There’s a risk.” We don’t exactly know if there was a case or not. But then we send these 200 people home and then say, “Look, wait a few weeks and come back then.” Of course, you’re being paid. But I think there is a very detailed crisis protocol.

Second, we have a very strong response in food safety, food safety and security. What goes into a can? How can we prevent that things are contaminated? How do we clean? How do we make sure there’s a safety and health focus on products? And we have this for each and every one of our factories. We have regular calls in each factory on how to deal with cases if they happen. So try to be — we really — this is where being an operator of factories pays off. And where it’s really good that you know, okay, how do you do diligent process management.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [16]

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I think we have a last question regarding the — is it possible to use the current strong development, the demand environment to use this one as an opportunity to launch some new products? And do you know that the nuclear development was clearly a focus for us over the last few years? Maybe here right now the NPD development is not a key focus for the customers. At least, in the Ambient business, the key focus is really having some products on shelves. And we manage this one very well, I think, in Q1 2020. But right now, in our discussion with the retailers, the launch of the new products is not a key focus. However, we did some because we still continue to do some of them regularly. But here, the key focus is really maintaining and making sure the supply chain is efficient, and we have some product on the shelves.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [17]

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So I think the point is a good point. This is a time to bring new products in the market. And I think what we hear as a feedback is, look, serve the base demand first. And once you’re through that, then people are open again to look at new products, and we’re gearing after that.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [18]

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All right. It looks like we have exhaust all the list of questions here. I suppose that is it. So I would like to take this opportunity to conclude this live conference for the Thai Union Group First Quarter Year 2020 Results Announcement today. Thank you very much for your time and interest and participating here even today. Thank you very much, Joerg and Ludo.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [19]

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Thank you.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [20]

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Thank you.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [21]

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And again, for the audience, I mean, you have to need further inquiry, please feel free to contact our IR Department anytime during office hours. I wish you all have a good day, and thank you very much. (foreign language)

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [22]

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Have a good day.

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Joerg Ayrle, Thai Union Group Public Company Limited – Group CFO [23]

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Thanks.

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Bunlung Waiyanont, Thai Union Group Public Company Limited – Assistance General Manage of IR [24]

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Bye-bye.

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Ludovic Regis Henri Garnier, Thai Union Group Public Company Limited – Head of Group Accounting and Control and General Manager of Corporate Accounts [25]